Question

In: Economics

Define perfect competition market and briefly describe its main conditions

Define perfect competition market and briefly describe its main conditions

Solutions

Expert Solution

perfect competition is said to be occurred where there are large number of buyers and seller of a homogeneous produce and the price of the product is determined by the industry. there is one price that prevails in the market all firms sell the product at the prevailing price.

Main conditions are as follows.:

  • Large number of buyers and seller exist in the perfect competition. : Many buyers are available to buy the product, and many sellers are available to sell the product.
  • Producers sell homogeneous product to buyers: firms produce identical products.
  • There is absence of artificial restrictions. No government interventions and no price and product control.
  • Free entry and exit of firms are considered. firms may enter and exit from the market any time
  • Perfect knowledge about the market. both seller and buyer have information about the market and its conditions. buyer and seller both have perfect information about price.
  • Perfect mobility of factors of production is noticed : factors of production can move to industry where they find more wages and remuneration.
  • Firms are price taker and sell the product at price decided by the industry. Firms are restricted to sell the product at price decided by the industry, they can not increase or decrease the price itself.
  • Non existence of transportation cost. As uniform price prevails through out the market. so no transportation cost will exist in the market as buyer will not go far away to purchase the goods.

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